4. Land Transactions

Even though agricultural land is freely transferable in all EU accession countries, land markets generally are under-functioning. Many of the emerging markets are still bogged down by the slowness of the initial privatization and titling of land. Lease of agricultural land is much more common than purchase and sale.

a. Purchase and Sale

Of the ten EU accession countries, only Poland and Lithuania have relatively vibrant land markets.

The agricultural land market in Poland is active and relatively free. The Agricultural Property Agency estimates that approximately two to four percent of farmland is sold each year on the private market—about 500,000 to 1,000,000 hectares annually.359 This is within the range of market activity for agricultural land in the Western European market economies.

In Lithuania, about 4% of all land parcels change ownership annually through market activity.360 The market for agricultural land is the most active in Lithuania, unlike in other EU accession countries, where most market activity is for non-agricultural land.361 Agricultural parcels account for more than 58% of all land parcels transferred in Lithuania per year.362 However, prices of agricultural land on the private market in Lithuania are low. They are estimated to be around 1,500-2,000 litas per hectare ($375-500 per hectare).363

For those countries that do not have an active land market, there are several common land market constraints.

i. Restitution

In many cases the restitution process in incomplete. Without title to land, no purchase or sale of land can occur. Land with outstanding or disputed claims is unmarketable as well. In the Czech Republic, the legal infrastructure is well developed to support land markets. Nonetheless, between 1994 and 1999, it is estimated that less than one percent of the total agricultural land was bought and sold.364 The factors impeding land market development include potential outstanding claims of exiled Sudetenland Germans, and high transaction costs in the agricultural land market (caused by loss of boundary data).365 A FAO report has also cited the awaited privatization of state land and seemingly low interest in land investments for the lack of land market activity.366

A study of the functioning of land markets in the Central and Eastern European (CEE) countries from 1997 data revealed that the land markets in Latvia and Slovakia were performing at 20% (in comparison to the EU norm of 100% land market performance) based on specified indicators, including completion of the land restitution process, completion of land titling databases, level of annual title transfers and level of annual mortgages issued.367 The growth of the real property market in Latvia is very slow, specifically for agricultural land.368 Data from 1999 indicated that the Latvian agricultural land market was still “slack.”369 The slow process of land registration is one of the major reasons for the slow land market.370

In Bulgaria, the land restitution process was completed in 2000. Prior to that time, the many claims to land caused insecure land tenure, not only for the land owners themselves, but also for the neighboring land owners. In addition, there was little incentive to sell land, because the land tax was forgiven on restituted land for 5 years. At this time, while land tenure is legally secure, landowners do not have confidence in the security of their rights because the restitution law has changed so many times.

ii. Low Prices for Agricultural Land and Products

In Bulgaria (as in other EU accession countries) product market information is very poor. Bulgarian farmers suffered huge losses several years ago when many farmers planted peppers and flooded the market. In 1998, there was a significant decrease in the price of land because the market for agricultural produce was very poor. Moreover, since land rights are perceived to be insecure, utilizing these rights is seen as involving risk. Therefore, prices for land are discounted to reflect that risk.371

In Hungary, land only became alienable in 1996. The demand for agricultural land is weak, thus land prices are unrealistically low and owners withhold land from the market to wait for higher prices before selling. The lack of realistic real estate prices complicates the pricing of mortgage loans and mortgage bonds.372 Current land prices are multiples of the prices sold in the auctions for compensation vouchers, but they still cannot be compared with land prices in the rest of Western Europe, and amount to only one-tenth of those in the neighboring countries.373 However, in 1999 it was reported that agricultural land had increased in average sale price by 500%.374

Also accounting for downward pressure on land prices in private transactions, in some countries, has been the presence of state land fund land, which is separately discussed in sub-section [B] above.

iii. Restrictions on Foreigners and Legal Entities Owning Land

Most of the EU accession countries prohibit or limit foreign ownership of agricultural land. In Romania, the Constitution explicitly prohibits foreigners and stateless persons from acquiring ownership rights to land. However, the foreign investment legislation states that partly or fully foreign owned companies with Romanian legal entity status may acquire ownership to land in order to carry out their activities, but that the land must be disposed of if the Romanian legal entity liquidates. Thus, a foreign legal entity is able to acquire land for its activities through a Romanian legal entity.

In Estonia, there are limitations on the acquisition of real estate by foreign legal entities and foreign-controlled Estonian legal entities.375 According to the law, real estate may be transferred to foreign legal entities (for production purposes) only by consent of the local governor and, in the case of foreign-controlled Estonian legal entities, on the condition that the branch of a foreign legal entity is registered in Estonia.376 Cooperatives, corporations and other private companies may own non-land assets, but must lease their land resources from individual landowners or the State.377

In Poland, significant administrative limitations remain on the acquisition of agricultural land by foreign physical and legal persons. Foreigners can (and do) lease farmland, but the Polish public and government are much more reluctant to allow sales of land to foreign citizens.378 The Polish government in 1999 applied to the European Commission for a permit to derogate from EU law by instituting an 18-year ban on the purchase of farmland by foreign nationals.379 Poland is wary of a land rush by citizens of Western EU nations who, it is feared, would snap up fertile Polish farmland at prices from one-half to one-fifth the cost of such land in their home countries.380 For example, in the former East Germany, which Poland neighbors, agricultural land averaged about DM 7,000-9,000/hectare (about 15,000-19,000 zlotys/hectare), while land in Poland ranged from around 3,000 to 7,000 zlotys/hectare.381

Foreigners must have permission from the Ministry of the Interior before they may buy more than one hectare of agricultural land or 0.4 acres of non-agricultural land.382 These restrictions raise the issue of compliance with the EU Charter’s “freedom of establishment” provision, as the need for Interior approval is prima facie discriminatory. However, Article 54(3)(e) of the Charter states that the right of foreigners to acquire farmland must be subject to the objectives of the agricultural policy under Article 39, which take into account the “social structure of agriculture,” the “disparities between the various agricultural regions,” and the need to make adjustments “by degrees.” As Poland moves toward an economic par with its Western neighbors, the fear of a land rush by foreigners should subside, and the restrictions on foreign ownership should be eased.383

In Hungary, land markets have been slow to develop due in part to legal restraints on land sales to legal persons and foreigners.384 However, as of July of 2001, Hungary agreed during EU Accession negotiations that foreign legal persons will be able to buy arable land, but not until 2011. However, foreign citizens will be able to purchase land only if they have been residents for at least three years, farm for a living, pay taxes and if Hungarian farmers renounce their pre-purchase option.385 Hungary wants to preserve its farmland for Hungarian farmers and rid itself of foreign farmers who illegally bought land after 1994, or have options to do so under contracts hidden behind legal leasing or other deals.386 Hungary also restricts private land owners to holdings of no more than 300 hectares.

iv. Transaction Costs

The land market in Romania started to operate legally only in 1998.387 In practice, the most important impediment to land transactions may be excessive notary fees.388

Another transaction-related issue is that co-owners, neighbors, or lessees of extra-vilan agricultural land (agricultural land not in towns) have a pre-emptive right to buy such land if it is offered for sale. The owner of such land offered for sale must notify the local administration, which publicizes the offer to sell for 45 days. Within this time period the pre-emptive rightholders have the opportunity to make an offer to buy the land. The seller must accept the offer if the price is satisfactory. If it is not, the seller may sell the land to anyone. The 1998 law “On the Legal Circulation of Agricultural Land” clarified and narrowed the preemption rules. While pre-emptive rights extend the time for concluding sale transactions, they are not a major impediment to land markets in the Romanian context.389

In Lithuania, high transaction costs are a major problem, especially for transactions involving small amounts of land. The two principal costs are notarial fees and surveying charges.390

In Estonia, the land market is restricted by slow land administration procedures preventing new land owners from actually getting titles for their land.

v. Historical Association with Land

The Slovenian land market is noticeably less active than other CEE countries, such as Hungary, Poland, Czech Republic, Slovak Republic, and Latvia, despite a desire on the part of government leaders to achieve economies of scale by increasing farm size.391 The legal infrastructure to support land markets is generally well developed. Slovenes’ historical association with the land has restrained land markets. The same families have been settled on the land for generations and their small plots are not often offered for sale, despite being underutilized and often farmed part-time.392 Slovenes like to be associated with the land, but are not necessarily interested in active land use.393 As a result, land leasing has been the primary method for increasing holding size. Again, it will be recalled that land continued to be farmed individually throughout the communist period.

b. Lease

Land leasing is easily the most prevalent type of land transaction in the EU accession countries. The leasing environment is examined here in the context of two important factors. First, in Estonia, Lithuania, and Poland the State continues to own much agricultural land. Its land leasing activities thus impact the entire lease market. Second, in the Czech Republic, Hungary, Slovakia, and Bulgaria, all countries that utilized restitution processes, new land owners are often leasing their land back to the former collective farms. This too has market-wide impacts.

In Poland, private leasing may be undercut by the artificially low rents the APA charges for state-owned land. The APA rates as of 1999 were less than 10% of average annual production.394 However, most APA leases do not directly compete with private leasing, as they concern large tracts of land in the north and west where family farms are rare. However, APA leasing of smaller plots in the south does occur, and may have a negative impact on private leasing transactions there.395

Both Polish nationals and foreigners have the right to lease agricultural and non-agricultural land. Until 2000, under the Civil Code lessees with lease lengths of 3 years or more had a right of first refusal to buy the land they leased. The land had to be sold through a competitive bidding process, however.396 This provision was challenged in the courts, and was found unconstitutional.

In Estonia, while many restituted land owners lease their land to the cooperative farms, most of the leased land is still leased from the State, since the land privatization is not completed.397 Nevertheless, leases are widely used to start or expand farms. In addition, consolidation of land holdings has taken place through the lease market both for large and small farms.398

In Lithuania, the State is the dominant supplier of land to the lease market. At present, the rental of private land makes up about 6% of the total lease market.399 State land makes up the balance, and over half of it is leased to family farmers and individuals rather than large cooperative farms. One problem with the State's dominant role is that its lease rates are low, and specifically much lower than private lease rates.400 These low rates may be undercutting the development of a lease market for private land, though the intent behind the low rates is to keep land under production.

In the Czech Republic, both corporate and collective farms use leased land almost exclusively. Larger private farms also lease a significant amount of land, but most leases are only short to medium term, as mandated by law.401 Rental rates are low, typically less than 1% of the official value of agricultural land. In areas where land is of lesser quality these rents barely cover the land tax.402 These lease agreements between the undismantled cooperative farms and the actual landowners are argued to have staved off land use fragmentation.403 However, this may not be a viable long-term solution due to the high transaction costs for short-term leases. Moreover, these large cooperatives are relatively unproductive.404 One might see it as a dilemma: the lessors mostly live in urban areas and have no interest in farming themselves, and substantial state subsidies prop up the large cooperatives, probably distorting the agricultural sector in ways that keep more efficient and competitive lessees (and potentially buyers) of land from emerging.

In Hungary, the land lease market is well developed and is one of the primary ways farms have consolidated holdings, with a significant proportion of land being concentrated into very large holdings. A 1998 PHARE/ACE survey in Hungary reported that the land leasing market has been dynamic over the past years. Among surveyed households, 16% leased land to others, and 8% leased land from others.405 Other surveys conducted by the World Bank and Phare/ACE have also shown that individual farms with leased land are significantly larger than farms using only their own land.406 The lease system is imperfect too however, and may not promote long-term investment in farms.407 Many of the leases are short-term. The minimum lease term is not regulated by the law, and in 95% of cases, the lease is for less than 5 years. While short-term leases do not encourage long-term investment, Hungary’s agriculture is still dominated by large cooperatives, and short-term leases allow landowners the flexibility of leasing to more productive farms or selling their land as the market improves. Long-term leases at artificially low rentals to inefficient successors to collective farms would probably be a near-worst-case scenario for virtually any of the countries dealt with in the present report.

In Slovakia, a strong and competitive lease market has developed.408 The biggest utilizers of this market, however, are not individual farmers seeking to consolidate or increase their holdings, but cooperatives, companies and farm entrepreneurs who are hunting for well-placed consolidated holdings.409 The specific factors that make the lease market in Slovakia stronger and more competitive than in the neighboring Czech Republic (if indeed this is the case) might warrant closer farm-level exploration.

In Bulgaria an active lease market exists, although most leases have been annual, due to uncertain land tenure security for those whose land has not yet been restituted. Leases that are for less than four years are called rental agreements and do not fall under the protection of the lease law. Generally rental agreements are written and re-signed every year and are not notarized or registered.

The Land Lease Law requires written, notarized leases to be registered with the land commissions.410 A lease cannot be for less than 4 years or more than 50.411 The maximum amount of land that can be leased in is 600 hectares. The lease payment can be made in money or in-kind. The lessee has a preemptive right to purchase leased land.

Private farmers generally lease land from pensioners, urban dwellers, or cooperative farms. Although members of an agricultural cooperative and restituted owners own their own land and can withdraw this land at any time, they typically contribute the lease right to the cooperatives. It is therefore the cooperatives, not individual members, who lease out land to private farmers. By leasing from cooperatives, private farmers are able to get contiguous plots of land and able to make one agreement rather than dozens. The leases are generally for one year (rental agreements). It would be difficult for a cooperative to lease land for longer periods because cooperative members can withdraw their land at any time. Private farmer lessees generally pay higher rents to lessors than cooperative farm lessees.

Government officials and farmers alike agree that many lessors, including restituted owners, who are renting to cooperative farms receive nothing in return.412 Cooperatives do not pay rent when prices are low in order to avoid losses. Other cooperatives decide at the general meeting to buy machinery instead of paying rent to owners for their land. Of those cooperatives that are paying rent, the rent is quite small.

Slovenia does not fall into either of these patterns (state land-fund leasing or leasing by restituted owners), because its agriculture is dominated by small private farms. Here the market appears to be working in that the number of households owning land has decreased, while total area farmed has increased.413 More specifically, farm structure is shifting to favor larger sized farms. The number of households farming an area of land larger than 5 ha. has increased at the “expense” of smaller farms and these changes, particularly for farms in the category of 10-20 ha., are occurring through increased land leasing as well as through household purchase of previously non-cultivated small plots.414 More than 50% of household farms larger than 10 ha. lease in land, except pensioners, who lease out more land than they lease in.415

In Romania, the lease market for agricultural land is significantly developed, and both oral and written contracts occur. Romania’s agriculture, like Slovenia’s, is dominated by small private farms. Lessors are often urban residents or pensioners, with pensioners often holding back 0.5 to 2.0 hectares to farm for household consumption. Lease terms range from 1 to 5 years.416 Rents paid typically range from 10-30% of the crop, which suggests quite a vigorous and competitive lease market. Leasing is particularly important since a high percentage of rural land owners live in the towns, and thus do not cultivate most or all of their land personally.

The most significant lease restriction is the requirement that lessees who are natural persons must be Romanian citizens. Additionally, lessees which are legal entities must be "of Romanian nationality" and have a representative office in Romania.

The restriction on foreigners leasing in land is more onerous than a restriction on sale of land to foreigners, primarily because lease arrangements do not have the definitive results of a sale, if the lease is not of a long-term nature.

Another limiting restriction is that a lessee who is a physical person must have agricultural education, agricultural experience, or hold a certificate issued by the Ministry of Agriculture that testifies to the lessee's knowledge. This requirement adds a level of complexity to the lease transaction process, since the lessor must somehow determine that the lessee meets the standard. This requirement also manifests a lack of confidence in the workings of the market, which is premised upon private actors undertaking endeavors in which they believe they will be successful.

5. Mortgage

All of the EU accession countries have quite limited land-based lending. The primary reason for this is that the market for land is reasonably new and under-performing in most countries. In some countries, land titles are not clear or secure. In others, land prices are very low. This section looks more closely at the impediments to mortgage.

a. Lack of Clear Ownership Rights

The restitution process that occurred in many of the EU accession countries placed title to agricultural land in a state of limbo for long periods of time. Without clear and defensible title, the land market could not develop and the mortgage of agricultural land was impossible. While in many countries this situation has changed in the last few years, bank perception that titles are insecure continues.

One example is Bulgaria, where the restitution process was chaotic and ever changing. Even after the restitution was completed, banks continued to hold the perception that until all land disputes are finally resolved, restitution will not be complete, and it will not be safe to use land as collateral. Even when the Supreme Court issued a decision that the land commission decisions and notarized titles have equal legal value, banks continued to state that the main obstacle to using agricultural land as collateral was that only 24% of restituted owners had notarized titles.417

Several EU accession countries do not have separate mortgage laws, but instead have mortgage rules within the Civil Code, Code of Civil Procedure, the Commercial Code, and Laws on Contracts. As these separate laws are amended to meet the needs of a market economy, the foreclosure rules and priorities are often conflicting.

In the Czech Republic, mortgages were traditionally governed by the Czech Civil Code, as well as other laws and regulations set forth for establishing a mortgage and registering it in the cadastre.418 The 1991 Commercial Code also dealt with securing liens, mortgages, and encumbrances. Some of these provisions created controversy with regard to whether public sales or other forms of foreclosure were possible under the Commercial Code. As a result, on January 1, 2001, changes to the Czech Civil Code regarding mortgage liens took effect and the section of the law that deals with mortgages has been entirely rewritten.419

These changes reflect how the Czech Republic chose to balance the interests of the creditors and debtors:420

More precise definition of what property or rights can be encumbered;

Tax liens go into effect only after the owner’s appeal rights are exhausted – correcting previous problem where banks unwittingly placed a mortgage lien on property that already had a lien for unpaid taxes, unknown to the landowners;

In a bankruptcy proceeding, taxes and costs of bankruptcy are given special priority;

Certain arrangements between mortgagor and mortgagee are now null and void (for example a foreclosure in a different manner than that provided by law is null and void);

If secured debt is not paid, the lien creditor may foreclose the lien by sale of collateral under court supervision, or in a public auction; and

The amended law also grants the lien debtor the ability to contest foreclosure within one month of auction or sale of collateral.

Mortgage law and practice in Poland suffers from several weaknesses. First, foreclosure procedures cannot be worked out contractually, but must go through the slow and expensive court process.421 Second, on the practical front many farmers disapprove of bank foreclosures and refuse to buy their neighbors’ land at foreclosure auctions.422 A third problem is the extreme delays in registration of mortgages. In order to be considered valid under the Civil Code, a mortgage must be recorded in the land register (ksiegawieczysta).423 This process can take between 6 weeks and 6 months.424 During the interim, of course, the borrower cannot access the loan money and the bank has no registered rights on the land. To deal with this problem, independent insurance companies have begun to guaranty the bank’s security interest between notarization and registration, for a fee of about one percent of the loan amount.425

In 1997 the Polish Parliament sought to improve the mortgage system by passing a law “On Letters of Hypothecation and Mortgage Banks.”426 The new law moved the order of priority for mortgages from sixth behind other creditors to third, behind only foreclosure costs and alimony claims.427 It also, less positively, limited the mortgage loan to 60% of the value of the mortgaged real estate.428 This limitation applies only to mortgage banks, however -- regular commercial banks can lend up to 80%.

In Romania, certain technical amendments to the mortgage law might help, for example, lengthening the maximum period of time for bank ownership of land. The 1999 limit was one year with a possible one year extension.429 Countries transitioning to market economies sometimes prevent banks from owning agricultural land, especially as a result of a foreclosure, for fear that banks will become large landowners and engage in land speculation. Rules such as these are often too restrictive and have the effect of discouraging mortgage lending. In Romania, the 1998 Banking Law forbids bank ownership of land, except for bank offices and for land "acquired as a result of the execution of the bank's claims," i.e. foreclosure, in which case the land must be disposed of within one year absent exceptional circumstances. Given the weak land market, perhaps an extension for banks would be beneficial.

In Bulgaria, the Contracts and Obligations Act provides that registration of a mortgage is effective for only 10 years. A registration may be renewed, but if it is renewed after the 10-year term expires, it loses its priority to any encumbrances registered in the meantime. The 10-year limit stems from the fact that Bulgaria's mortgage registration system is not parcel-based; mortgages are registered in chronological order in mortgage registration books. Because these books are not indexed according to parcel number, it is necessary to search all the books to determine whether a mortgage exists with respect to a certain property. The 10-year limit was an attempt to limit the time period for which a search was necessary. Once the new parcel-based registration system is implemented (see discussion at IV.B.1) there will no longer be a rationale for the 10-year limit, and the law should be changed so that registration is effective until a mortgage is terminated. This 10-year limit makes it difficult for banks to make long-term loans based on mortgage.430

Another common complaint of creditors in Bulgaria is that prices paid at public sales rarely reach the true market value of the property. One of the main reasons given for low sales prices is that sales are not adequately advertised. Sale notices are typically posted outside the office of the execution judge and on the property itself, but the law does not require broader publication in newspapers.431

c. Weak Land Values, and Bank Attitudes Toward Agricultural Land

Mortgage lending in Hungary may have been slowed by bank attitudes.432 Hungarian banks were initially reluctant to lend against land and overwhelmingly preferred houses and personal possessions as collateral. During the transition period, banks required very high levels of collateral and banks also would not accept land as collateral if its size was unsuitable and not considered economically viable.433

Moreover, in Hungary 80% of land is leased.434 The lessee may not encumber the land with a lien, so mortgage credit to farmers is restricted to the 20% of land that is owned by the operator. However, even if mortgage of the right to lease land was possible, the common short lease terms of 3-5 years increase the difficulties for developing a mortgage credit system based on lease.435 Also, in many cases, one lessee operates on the land of several owners. Pledging the land related to less than one economic unit causes problems, especially if the parcels provided as collateral by the owners do not form one closed unit in territory and the land value does not represent sufficient security for the creditor. The value of such collateral to a bank is highly questionable.436

In Lithuania, access to credit for the agricultural sector has been very limited and complicated.437 The Agriculture Bank, a state-owned bank, has remained the primary source for rural credit.438 High transaction costs associated with lack of information and experience, as well as the absence of sufficient and reliable land titles, are significant reasons for bank reluctance to provide rural financing, especially for long term investments.439

d. Inability of Legal Entities (Banks) to Own Land

In Estonia, Lithuania, and Hungary mortgage lending is at an early state of development and is severely constrained by the restriction on land ownership by legal entities, since banks are less willing to take land as collateral if they cannot take ownership of the land in foreclosure proceedings if there is an inadequate bid, or no bid.440 At a minimum, this would probably lead banks only to lend on the security of agricultural land which is clearly marketable and has value well in excess of the loan amount, so that sale to a third party at an acceptable price at a foreclosure auction would be virtually assured.

e. Under-Capitalized Banking Sector

In Slovenia credit services have been slow to develop, while land prices approach the highest levels in Europe and are high compared to the land profitability prospects.441 Land markets in Slovenia have been hampered by the lack of a mortgage banking infrastructure. The central problem is the inability of the financial sector to engage in true, long term secured lending because the sector is under-capitalized and cannot afford to have money lent out for extended periods of time.442

In Slovenia, there are no laws, statutes or regulations that specifically deal with mortgage banking services or protecting consumers.443 There is legislation defining mortgage loans and legislation regarding bonds, but these two features are not linked by legislation regarding mortgage banking.444 Thus, banks are not in a position to assure long term sources for financing their mortgage credits through bundling mortgage loans and refinancing on a secondary market. Banks use mortgage as collateral for the corporate sector, and some individuals receive mortgage loans for housing.445 However, these loans generally mature within 10 years or less, and loans with maturity over 20 years do not exist.446

In Bulgaria, the banking sector crashed in 1996. Following this crash, the lending environment has been difficult, and banks have required high-value collateral. Currently, banks have relatively high liquidity because they have worked to reduce losses by keeping assets in liquid investments rather than loans. Loans have been restricted, in part, in order to make banks as appealing as possible to potential private investors.447

f. Limited Reach of Guarantee Funds

While many of the EU accession countries have mortgage guarantee funds, mortgages and credits to the private sector continue to lag, and usually only one lending institution deals with such guarantee funds. Guarantee programs encourage at least limited mortgage financing, but are often criticized for functioning like income subsidies and simply sustaining inefficient farm structures and distorting the agricultural credit market. Where guarantees do exist, there need to be appropriate limits and risk sharing, as well as focus on who will receive these guarantees.

In Hungary, the Land Credit Bank Company is the only bank dealing with land mortgage credits in the country.448 At the end of 1998, 51% of arable land constituting 16% of the total credit guarantee value was found in its portfolio. Eighty three percent of its agents who offered the collateral were private persons.449

In Latvia, a 1998 assessment of rural finance found that the private banking system was operational and was serving farms and agro-food businesses.450 Government credit programs had been established to deal with the “high risk” agricultural sector, including the State Land and Mortgage Bank.451

Despite some development in this arena, the involvement of commercial banks in providing farm credits is still limited and so is the assistance offered by credit programs, which have reached only a few better-off farmers.452 There is, therefore, still a shortage of both short-term and long-term credit for agricultural producers in Latvia. Long-term interest rates fluctuate between 25-40%.453

In Slovakia, no bank has a license for long-term mortgages of more than five years. The only options are loans of three to five years with interest rates of 19-20%.454 The State Support Fund had been offering soft loans for land purchase, but only a few had been taken out as of 1997.455

In Romania, in 1994 the Guarantee Fund for Rural Credit was established with the assistance of a ECU 9 million contribution from the European Union under the PHARE program.456 The shareholders are four commercial banks: Agricultural Bank; Romanian Commercial Bank; Romanian Bank for Development; and Bankcoop. The fund provides guarantees only for loans provided by these banks and are only for medium and long-term loans to the private sector.457 The fund guarantees up to 60% of the loan value plus interest.458

Despite these programs, the state agricultural sector is still the main recipient of credit. The Agricultural Bank lent 85% of its short-term credit and 73% of its medium and long-term credit to the state sector.459 Many of these agricultural loans, provided under government mandated programs, are not performing. This is especially true with the passing of a law in 1996 which provides defaulting borrowers with unrestricted access to fresh loans and for rescheduling of bad debts in 1997 and 1998.460 Hence, to the extent that the government does not honor its guarantees with respect to these non-performing loans, the recognition of these losses is just being delayed to a future budgetary period.461